Genentech and Biogen Idec said a key study of Rituxan did not meet its main goal of a response in patients with systemic lupus erythematosus, commonly called lupus.
The Phase II/III study also did not meet any of the six secondary endpoints, the companies said.
Shares of Genentech was down more than 6 percent, while Biogen stock fell more than 4 percent.
"We are disappointed in the results of this Phase II/III study, but we understood from the outset the significant challenges in developing treatments for systemic lupus erythematosus," Dr. Hal Barron, Genentech chief medical officer, said in a statement.
Lupus is an autoimmune disease characterized by inflammation of the joints, skin, major organs and central nervous system as the immune system attacks healthy tissues and cells.
The 257 patients in the study were evaluated for effectiveness every four weeks for 52 weeks using a measure of lupus disease activity known as the British Isles Lupus Assessment Group, or BILAG.
JP Morgan analyst Geoffrey Meacham said Wall Street had been optimistic about Rituxan for lupus due to favorable data in smaller studies.
"That said, our model and most Street models did not include lupus sales, so we don't expect large downward revisions to estimates on the news," Meacham said in a note.
Rituxan, an antibody that is approved to treat rheumatoid arthritis and non-Hodgkin's lymphoma, is also being studied in a Phase III trial in a different set of patients who have lupus nephritis.
Results of that trial are expected in the first quarter of 2009.